Date: 20110301
Docket: A-306-10
Citation: 2011 FCA 79
CORAM: EVANS
J.A.
DAWSON J.A.
LAYDEN-STEVENSON
J.A.
BETWEEN:
IMPERIAL PACIFIC GREENHOUSES
LTD.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT OF THE
COURT
(Delivered
from the Bench at Vancouver, British Columbia, on March 1, 2011)
DAWSON J.A.
[1]
This
is an appeal from a judgment of the Tax Court of Canada (Tax Court). In
reasons cited as 2010 TCC 431; [2010] T.C.J. No. 328, the Tax Court dismissed
the appeal of Imperial Greenhouses Ltd. (Imperial) from an assessment issued by
the Minister of National Revenue (Minister). The following brief review of the
facts is sufficient for the purpose of this appeal.
[2]
As
of January 3, 2006, an individual named Paul Houweling had a tax liability of
$4,596,399.00 under the Income Tax Act, R.S.C.
1985, c. 1 (5th Supp.) (Act). Prior to that date, Mr. Houweling
had lent monies to Imperial. The loan had not been repaid, and as of January
3, 2006, the amount of Imperial’s indebtedness to Mr. Houweling was
$758,631.00.
[3]
On
January 3, 2006, the Minister issued a requirement to pay to Imperial in
respect of amounts Imperial was liable to pay to Mr. Houweling. The
requirement to pay was issued pursuant to section 224 of the Act. For this
appeal, the relevant portions of section 224 are subsections 224(1) and
(4) which state:
|
224. (1) Where the
Minister has knowledge or suspects that a person is, or will be within one
year, liable to make a payment to another person who is liable to make a
payment under this Act (in this subsection and subsections 224(1.1) and
224(3) referred to as the “tax debtor”), the Minister may in writing
require the person to pay forthwith, where the moneys are immediately
payable, and in any other case as and when the moneys become payable, the
moneys otherwise payable to the tax debtor in whole or in part to the
Receiver General on account of the tax debtor’s liability under this Act.
[…]
(4) Every person who fails to comply with a
requirement
under subsection 224(1), 224(1.2) or 224(3) is liable to pay to Her
Majesty an amount equal to the amount that the person was required under
subsection 224(1), 224(1.2) or 224(3), as the case may be, to pay to the
Receiver General. [emphasis added]
|
224.
(1) S’il sait ou soupçonne qu’une personne est
ou sera, dans les douze mois, tenue de faire un paiement à une autre personne qui, elle-même,
est tenue de faire un paiement en vertu de la présente loi (appelée «
débiteur fiscal » au présent paragraphe et aux paragraphes (1.1) et (3)), le
ministre peut exiger par écrit de cette personne que les fonds autrement
payables au débiteur fiscal soient en totalité ou en partie versés, sans
délai si les fonds sont immédiatement payables, sinon au fur et à mesure
qu’ils deviennent payables, au receveur général au titre de l’obligation
du débiteur fiscal en vertu de la présente loi.
. .
.
(4) Toute personne qui omet de se conformer
à une exigence
du paragraphe (1), (1.2) ou (3) est tenue de payer à Sa Majesté un montant
égal au montant qu’elle était tenue, en vertu du paragraphe (1), (1.2) ou
(3), selon le cas, de payer au receveur général. [Non souligné dans
l’original.]
|
[4]
Imperial
failed to comply with the requirement to pay. Therefore, on October 12, 2007,
the Minister issued an assessment against Imperial in the amount of
$758,630.00.
[5]
Imperial
appealed this assessment to the Tax Court. The sole issue before the Tax Court
was whether, for the purpose of subsection 224(1) of the Act, the sum of
$758,630.00 was payable by Imperial to Mr. Houweling within one year of the
issuance of the requirement to pay.
[6]
Imperial
conceded in the Tax Court that the loan agreement between it and
Mr. Houweling had no terms associated with it. It argued, however, that
after the loan had been advanced in full a verbal agreement was entered into by
which it was agreed that the loan would not be payable before the resolution of
a lawsuit Imperial had commenced relating to the supply of water to Imperial's
property (the water lawsuit). The water lawsuit was not settled until March,
2008. It followed, according to Imperial, that the assessment should be
vacated because no monies were payable by it within one year of the issuance of
the requirement to pay.
[7]
In
dismissing its appeal the Judge rejected Imperial's contention that, as a
result of a verbal agreement, it was a term of the loan that it would not be
payable before the resolution of the water lawsuit. Instead, the Judge found
that the loan became payable on April 5, 2006 or shortly thereafter when Mr.
Houweling’s wife sold her shares in Imperial. It followed that Imperial had
failed to comply with the requirement to pay and so was properly assessed by
the Minister.
[8]
With
respect to the asserted verbal agreement, the Judge found as follows:
26. The only
evidence of this verbal agreement was the statement of Albert De Vries [a
director of Imperial] that it was his understanding that this loan was tied to
the lawsuit and was to be repaid when the amount was received in relation to
the claim made in the lawsuit. There was nothing in writing in relation to this
condition nor did the Appellant call Paul Houweling as a witness to confirm
this condition. Since the debt was owing to Paul Houweling and since this
condition would have affected his right to receive payment, it seems to me that
the Appellant should have called Paul Houweling as a witness.
27. It also
seems to me that it is also important that this ground for allowing the appeal
was not raised in the notice of appeal. In the section of the Amended Notice of
Appeal (which is dated October 9, 2008) that is labelled as "Material
Facts to be Relied Upon", there is only one paragraph and this paragraph
is as follows:
At all material times, there was no written
loan agreement between Imperial Pacific Greenhouses Ltd. ("IPG") and Paul
Houweling.
There is no indication in the amended notice of
appeal that it was a term of the loan that Paul Houweling would not be paid
until the water case was concluded.
28.
As a result while it may have been the understanding of
Albert De Vries that the amount would not be payable by the Appellant to Paul
Houweling until the lawsuit was resolved, I do not find that this was a
condition of the loan.
[9]
The
only issue raised on this appeal is whether the Judge erred in finding that it
was not a term of the loan that the monies owing were not payable before the
resolution of the water lawsuit.
[10]
The
existence of an alleged verbal agreement concerning the repayment terms of the
loan is a question of fact or mixed fact and law that contains no extricable
question of law. Therefore, this Court may only intervene on appeal if the
Judge committed a palpable and overriding error when he concluded that the loan
was not subject to a term that no monies would be payable before the resolution
of the water lawsuit: Housen v. Nikolaisen, [2002] 2 S.C.R. 235.
[11]
Imperial
argues that the Judge erred, at paragraph 26 of his reasons, by stating that
there was nothing in writing evidencing the verbal agreement. It points to a
letter written by Mr. De Vries to the Canada Revenue Agency on July 23, 2004 which
was not expressly mentioned by the Judge. The letter stated:
The notes to the financial
statements I believe answer the questions you have asked me. Questions related
to agreements are all verbal, there is nothing in writing. It was agreed
between the shareholders that loans, interest, truck rental all became payable
to shareholders as soon as money becomes available out of the court settlement
with the claim for the water and property tax issue; which to date no
decision has been finalized. [emphasis added]
[12]
At
paragraph 26 of the reasons the Judge was making the point that the alleged
verbal agreement was never reduced to writing and there was no other document
between the parties that referenced any verbal agreement. Imperial has not
pointed to any document in the record that evidences the verbal agreement or
the parties' understanding of it. Mr. De Vries’ July 23, 2004 letter to
the Canada Revenue Agency relied upon by Imperial did not establish the
existence of the verbal agreement. Mr. De Vries’ letter simply referred to an
agreement between the shareholders. Mr. Houweling was never a shareholder of
Imperial. The letter is not evidence of an agreement between Imperial and its
lender, Mr. Houweling. It follows that the Judge did not err by failing to
reference Mr. De Vries’ letter to the Canada Revenue Agency.
[13]
Imperial
also argues that the Judge erred by drawing an adverse inference from
Imperial's failure to call Mr. Houweling as a witness. This is said to be an
error because the Canada Revenue Agency and courts in British Columbia had
previously found Mr. Houweling to be an unreliable witness.
[14]
There
is no merit to this submission. Assuming that the Judge drew such an
inference, it was for the Judge to assess the reliability of
Mr. Houweling's testimony. Neither the view of the Canada Revenue Agency
nor findings of other courts in other cases would be determinative of the issue
of the reliability of Mr. Houweling’s testimony before the Tax Court. Mr.
Houweling, as the lender, would have been a necessary party to the alleged
verbal agreement. His evidence would have been central to establish the
existence of the verbal agreement. As such he should have been called as a
witness or his absence should have been adequately explained.
[15]
For
these reasons, Imperial has failed to demonstrate that the Judge committed any
palpable or overriding error. The appeal will therefore be dismissed. Costs
were not sought and are not awarded.
“Eleanor
R. Dawson”
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